Proxy Season Shakedown: A New Wave of Suits Challenging Compensation Disclosures

Background
In 2010 and 2011, the “say-on-pay” provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act spawned a rash of shareholder lawsuits filed against the directors of companies that failed their say-on-pay votes. These lawsuits, filed as derivative actions (i.e., in which a shareholder brings claims on behalf of the company), generally alleged that the board’s decision to adopt the proposed executive compensation plan, despite a negative say-on-pay shareholder vote, was not a valid exercise of business judgment. The shareholder plaintiffs sought monetary damages and various corporate governance reforms. A limited number of plaintiffs were able to secure settlements in these cases, including a couple of lucrative attorney-fee awards in excess of $1,000,000. See, e.g., King v. Meyer, et al., Case No. 1:10-cv-01786-DAP (N.D. Ohio, 2010) ($1.75 million attorney-fee settlement); Woodford v. Mizel, et al., 1:11-cv-00879-RGA (D. Del., 2011). However, most courts dealing with these cases dismissed them at the motion-to-dismiss stage, finding that the shareholders could not maintain a lawsuit on behalf of the company but, instead, were required to make a demand on the company’s board before filing suit. These consistent rulings effectively shut the door on this first wave of say-on-pay litigation. See, e.g., Teamsters Local 237 Additional Security Benefit Fund v. McCarthy, 2011 WL 4836230 (Ga. Super. Ct. Sept. 15, 2011); Plumbers Local No. 173 v. Davis, 2012 WL 104776 (D. Or. Jan 11, 2012); Laborers’ Local v. Intersil, 2012 WL 762319 (N.D. Cal. Mar. 7, 2012); Weinberg v. Gold, 838 F. Supp. 2d 355 (D. Md. 2012); Iron Workers Local No. 25 Pension Fund v. Bogart, 2012 WL 2160436 (N.D. Cal. June 13, 2012); Gordon v. Goodyear, 2012 WL 2885695 (N.D. Ill. July 13, 2012); Swanson v. Weil, 2012 WL 4442795 (D. Colo. Sept. 26, 2012).